Background on the Situation
In response to trade practices he deemed unfair, U.S. President Donald Trump imposed tariffs on numerous economies worldwide, including those in Latin America. These tariffs, referred to as “reciprocal,” were intended to address perceived trade imbalances. Some economists warned that these measures could slow international trade due to increased export costs to the United States, the world’s largest economy.
CAF President’s Perspective
Sergio Díaz-Granados, President of the Development Bank of Latin America and the Caribbean (CAF), stated that the impact of Trump’s tariffs in Latin America has been “less than expected.” He acknowledged initial turbulence but noted that the situation has improved as time passes.
Established Trade Networks
Díaz-Granados explained that the existing and robust trade networks between the United States and Latin America facilitated adaptation to new tariffs. He highlighted several factors contributing to this resilience:
- Proximity: Latin America’s geographical closeness to the United States provides a competitive advantage.
- Deep Links: There are strong connections between the U.S. market and Latin American countries, including the presence of Hispanics and Latinos in the U.S., as well as American companies investing in the region.
Negotiations and New Trade Agreements
Díaz-Granados mentioned that Latin American countries successfully mitigated tariff impacts through negotiations with the United States following Washington’s announcement of increased import tariffs. He added that new trade agreements would bring some tariffs alongside compensatory measures, allowing for adjustments in supply chains.
Latin American Economic Outlook
According to Díaz-Granados, Latin America and the Caribbean are projected to grow at an average rate of around 3.2% by 2026, slightly below the global economic growth rate.
- Mexico: Díaz-Granados expects Mexico to regain investment and export momentum, which is positive since Mexico connects and drives much of Central America and northern South America’s trade networks.
However, he lamented that low investment flows, low productivity, and insecurity have kept Latin America’s economic growth below the global average over the past decade.
To close the gap in poverty and inequality, Díaz-Granados emphasized that Latin America needs to grow above 4% annually.
Key Questions and Answers
- What was the expected impact of Trump’s tariffs on Latin America? Economists initially warned that these tariffs could slow international trade and increase export costs to the United States.
- How did Latin America adapt to Trump’s tariffs? Existing robust trade networks and deep links between the U.S. and Latin American countries facilitated adaptation to new tariffs.
- What is the projected economic growth for Latin America by 2026? The Development Bank of Latin America and the Caribbean (CAF) projects an average growth rate of around 3.2% by 2026.
- Why is it crucial for Latin America to grow above 4% annually? To make significant progress in reducing poverty and inequality, Latin America needs sustained economic growth above 4%.
